Eskom approaches court to have R23bn equity injection added back this year

State-owned electricity utility Eskom will make the case later this month for the immediate execution of a High Court order stipulating that an amount of R23-billion stripped unlawfully from its allowable revenue in 2019 by the National Energy Regulator of South Africa (Nersa) be added back during its 2021/22 financial year.

Should it succeed, the standard average electricity tariff would rise by 15.6% on April 1, instead of the 5.01% already sanctioned by Nersa.

Complicating  matters even further is the fact that Nersa is in the process of adjudicating two remittals from the High Court, as well as finalising the implementation of the 2018/19 regulatory clearing account (RCA) balance decision of R13.2-billion. The court remittals refer to the Eskom supplementary application of R5.4-billion for 2018/19, as well as review of the RCA decisions for financial years 2014/15 to 2016/17 amounting to R33-billion.

Nersa is expected to finalise these decisions by end February 2021, which could be implemented in 2021/22 and may be more than the R23-billion being requested by Eskom in relation to the equity injection.

On July 28, 2020, Judge Fayeeza Kathree-Setiloaneruled that Nersa’s decision to exclude a R69-billion government equity injection from Eskom’s allowable revenue was unlawful. Nersa made that decision in 2019 as part of a three-year price determination, known as MYPD4.

She ordered, in paragraph two of the ruling, that an amount of R23-billion, representing one year of the injection, be added back during the 2021/22 financial year, or the final year of the MYPD4 period. The Eskom average standard tariff for 2021/22 “was accordingly to be increased from 116.72c/kWh to 128c/kWh”, the judge ruled in paragraph three.

The R46-billion balance should be replaced, the order stated, in the 2022/23 and 2023/24 tariff years, which would fall under the next multiyear determination period, yet to be adjudicated by the regulator.

On October 7, 2020, Nersa was granted leave to appeal the judgment to the Supreme Court of Appeals (SCA), suspending the implementation of the order.

However, Eskom subsequently launched an application, using Section 18 of the Superior Courts Act, in a bid to have the R23-billion added back from April 1 this year in line with the High Court order.

The utility argues that the action is urgent, as the SCA is unlikely to deliberate on the appeal by the March 15, 2020, the legal deadline for the finalisation of Eskom’s tariffs for the 2021/22 financial year.

It notes, too, that Nersa’s appeal of the High Court ruling is based not on any contestation of the illegality of its treatment of the equity injection, to which it has conceded, but on Kathree-Setiloane’s failure to remit the decision back to the regulator for reconsideration.

“But, even if it [Nersa] succeeds in having the matter remitted to it, it is inconceivable that it will be able to award an increase in revenue less than the R23-billion envisaged by paragraphs two and three of this court’s order of 28 July 2020,” Eskom argues in papers before the court.

Nersa is strongly contesting Eskom’s use of Section 18 of the Superior Courts Act to secure an execution of the R23-billion order notwithstanding the SCA appeal.

In a legal paper it argues that Eskom does not meet the legal thresholds to do so, including proving that failure to secure the R23-billion will cause irreparable harm to the utility without causing irreparable harm to Nersa.

This is core to Eskom’s case and Nersa’s defence, with Eskom also highlighting the harm to the fiscus of diverting resources away from social services to support its sustainability if it is unable to recover misappropriated funds.

Nersa, however, argues that Eskom has not established that Nersa will not suffer irreparable harm through the execution of the orders. In its papers, the regulator highlights that it acts in the public interest and that harm to the public interest is harm claimable by Nersa.

The regulator also opposes Eskom’s arguments that an execution of the order is in the interest of justice, arises in an exceptional circumstance and is urgent – the other three requirements for an application under Section 18 of the Superior Courts Act.

Nersa argues that Eskom has never, in all its court applications, sought the substitution relief granted by the High Court and has always sought a remittal of the matter to Nersa for reconsideration.

The regulator also contends that the consumer, in whose interests it acts, stands to suffer irreparable harm should the orders be implemented and Nersa then succeeds in its SCA appeal, which would lead to a remittal and reconsideration of the matter.  Nersa’s mandate is to balance the sustainability of Eskom with the impact on electricity consumers.

The matter is due to be heard by Justice Joseph Raulingaon January 29 and final decision is expected by the end of February